Correspondent Blog

On September 20, 2023, the Federal Open Market Committee (FOMC) left its benchmark rate unchanged, but it would be a mistake to conclude that the committee did not send a strong message about the projected path of future interest rates.  The FOMC revised its view on future projected interest rates – rates will be “higher…

On September 7, 2023, the FDIC released its banking profile.  This quarterly publication provides a comprehensive financial results summary for all FDIC-insured institutions (4,645 commercial banks and savings institutions insured by the FDIC).  While banks under $10B in assets comprise 97.8% of all banks by number, those same banks comprise only 14% of all banking…

Earlier this month, on August 7, 2023, Moody’s Investor Services (“Moody’s”) published a banking sector review.  That publication was referenced in the media as a US bank rating action, with a downgrade to ten larger banks (and a negative outlook to 11 other larger banks). However, that publication, directly and indirectly, identified three discrete risks…

The banking industry’s return on equity (ROE) was 14.42% as of Q1/23 and so far is looking materially lower for Q2/23. How should community banks target and compare their ROE to the industry and their peer group, and what defines a top-performing bank?  Most importantly, is there an ROE level ensuring a bank remains long-term…

Many banks pride themselves on superior customer service, and approximately 90% of all community banks believe that they provide an above-average level of customer service (the math cannot work that way).  The reason bankers should want to provide an above-average level of service is to increase profitability, which translates to charging customers more in the…

It turns out that confidence is more valuable than capital. While we wrote about the root cause of the failure of Silicon Valley Bank (SVB) HERE, the lessons of the current banking crisis go beyond interest rate risk management. While interest rate risk caused the most significant impact on value, several other factors contributed to…

In a previous article (HERE), we analyzed industry performance and demonstrated that the average five-year net interest margin (NIM) and return on assets (ROA) are unrelated.  The correlation coefficient (R2) between these two variables is NEGATIVE 0.02 (essentially no explanatory relationship).  This lack of connection has been a general observation in the banking industry for…

A potential economic slowdown, slower rate rises, an inverted yield curve, and deposit stress likely make 2023 a trying year compared to 2022. Banks will need to balance these short-term challenges with longer-term strategic goals. For any banker looking for clarity, we present five New Year’s resolutions, no matter your size, that provide a roadmap…

Despite reaching the highest profitability in over a decade in 2022, US banks overall trade at a discount to other sectors as measured by P/E or P/Book, and approximately 53% of US banks have earned less than their cost of equity over the last five years. The high profitability for banks in 2022 was propelled…

As interest rates go back up and volatility continues to remain high, banks’ cost of capital has undergone a significant shift up. Your cost of capital is essential to know for several reasons. Mostly, it gives your board and shareholders a yardstick in which to gauge a bank’s return. Produce over your cost, and you…

Help us, help you. It is budget and strategic planning season, and many banks have asked for this data in order to help calibrate their bank. We are asking about your expected budgets, views on the economy, prospects for growth, and the most significant challenges. We are looking for your thoughts on the future of…

Funds transfer pricing (FTP) has been an essential tool for financial institutions for several decades.  FTP was introduced to banks in the early 1980s to help manage interest rate risk on a transactional basis.  FTP gained further focus after the 2007 financial crisis when financial firms failed partly because of the lack of funds transfer…